Watch for oil to go up early this week as Hurricane Dean moves through the Gulf of Mexico. The FT says that Pemex, the large Mexican oil company, has taken over 13,000 workers off its rigs. These rigs account for about 70% of the company's output. The storm could move toward Texas after it hits Mexico in the next 48 hours.
Oil futures began to rise on Friday anticipating production shutdowns due to the storm. But, the possible has now become the probable, and companies including Chevron (NYSE: CVX), Exxon (NYSE: XOM), and Valero (NYSE: VLO) will begin to close facilities and move workers out of harm's way.
The storm is likely to point to how fragile the oil pricing ecosystem is. In August 2005, Katrina sent oil prices to $69, which, at that time, was a record price for crude. In some ways the current situation is worse than it was two years ago. OPEC has refused to up production and just over a week ago The International Energy Agency said that demand for oil would likely push prices higher in the near term.
How long the upcoming spike in oil prices will last will depend on how badly the oil drilling and refining infrastructure around the Gulf is damaged. But, a troubled market does not need more to worry about.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
8-22-2007 @ 8:18PM
lolygag1 said...
In my opinion OPEC doesn't have much more capacity. The American oil companies who used to discover and run their oil feilds, know what their actual reserves are. They are running on Peak Oil. It's better for them to send some money to countrys such as Nigeria to rile-up the radicals who lower the production of their countries. This keeps the price up and they don't need to use up THEIR reserves.
When OPEC was formed the members lied as to their reserves to get the right to produce more more oil each month. Kuait admitted last year they lied 55 billion barrels over the actual. Thats how the group decided how much each member could produce in the "Club".